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Cash, Investments, Inflation, Retirement & Ice Cream – Finger Financial Five #26

Jeremy
Jeremy

Inflation is like the wind.  You can’t see it, but you can sure feel it. – Jeremy Finger

Are you the kind of person that looks at your investment statement and if your balance is up, you are good with it?  Most people do just that.  Do you say to yourself, I made money so I am ok?  You may be ignoring the EXPENSE side of your bank statement.  If the COST of living your life goes UP, that is the same as your investments going DOWN.

For those of you who are looking at large cash balances, the numbers are misleading.  If they are the same or go up, you can STILL BE LOSING if you are not keeping up with inflation.  How?

When my dad and I would fish, we would use an electric motor if we had to go longer distances.  Sometimes we would have to fight a strong headwind.  If the motor turned off, the wind would blow us backwards, away from our intended destination.  Inflation works the same way as the wind, blowing you away from your desired financial goals by increasing their cost.  A motor is like properly allocated investments, (hopefully) overcoming the inflation headwind.

Side note: taxes are like dragging an anchor, slowing down your progress.  I spoke about this in the national publication, Investment News. Double side note: sometimes it makes sense to pay taxes today, to have much less tax drag in the future.

Reasons why inflation may rise, according to Blackrock[1]:

  1. Policy: Federal Reserve said they intend to keep interest rates low for an extended period and are willing to accept some levels of inflation.
  2. Fiscal Boost: The amount of fiscal stimulus that may be approved, is over 2x the actual pandemic-inflicted loss in GDP in 2020.  Such a level would aid in recovery, but could have an inflationary impact.
  3. Pent-up demand: People went from saving roughly 8% pre-COVID to 20.5% in the pandemic.  This extra savings appears to be burning a whole in their pocket, as people are spending on travel and other goods and services.

4.  Rising Production Cost: Companies may be rethinking their supply chain to have less concentration risk, which could increase cost.

For those of you who remember the 1970s, BlackRock sees little fear of runaway inflation due to structural issue such as an aging population and the disinflationary impact of technology.

What to do??

  • Revisit your investment allocation.  Some areas of fixed income and equites do better in rising rate environments.
  • Check your diversification. Many people are over allocated to growth verses value and domestic verses international.  If the U.S. dollar gets weaker, it could be a tailwind for international companies.

Ok, so now I get that cash loses to inflation. How much to keep?

  • Keep 3-18 months of monthly expenses in cash or cash like investments.  The wide range depends on the reliability of your income sources, number of dependents, and your unique situation.
  • If retired, keep at least one year of cash.  This is necessary to implement a Dynamic Withdrawal Strategy (DWS) to optimize your retirement income.
  • Some levels of cash can be considered for future opportunities.  What levels cash depends upon…wait for it….your unique situation!

Let me know if you have any questions about anytime.  Click here to setup a quick phone appointment. 

Listened to the book Atomic Habits on the way to Tampa, Florida.  Couple points.  First is very small steps lead to huge gains over time.  1% a day is 37x over one year.  Kind of like when I hiked Machu Picchu.  Second, is that there may no visible results for a long time, then suddenly, BAM, huge results.  Like melting ice, it may take tremendous effort to go from 0 to 31 degrees, but everything happens at 32 degrees.

On the lighter side, we had a great trip in Tampa, Florida. Resort was packed.  Weather was great.  One day we ate a Filipino restaurant that looked more like an old convenience store.  From the outside it looked sketchy, but inside the food was FANTASTIC.  I had the craziest dessert.  For those of you who have been to my website, I am a huge ice cream fan.  We got this “milkshake.”  What it looked like was, rice pudding, milk, a purple chewy ball, jellybeans, and corn, yes, corn!  OMG, it was SO GOOD!!!  Guess good desserts happen at 32 degrees too…

Hope all is well with you and your family,

Jeremy Finger, CFP®, CIMA®, CRPC®, CPFA

Founder & CEO
Wealth Management Advisor

Finger Financial Five – 5 points in 5 minutes or less – is to provide you with a weekly shot of useful financial information.  My intention is to share principles, so that you will have more clarity and peace, that help you make better financial decisions.

[1] Gargl Pal Chaudhurl March 20, 2021 “Investor guide to higher inflation.”

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Investment advice offered through Stratos Wealth Advisors, LLC, a registered investment advisor; DBA Riverbend Wealth Management.

This content is developed from sources believed to be providing accurate information and provided by Riverbend Wealth Management. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stratos Wealth Partners and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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